Thirty years ago, after making a series of controversial documentaries on smoking, including Dying for a Fag (1975) and A Dying Industry (1980), I wrote Smoke Ring: the Politics of Tobacco, outlining an industry denying the medical evidence linking cigarettes to deadly diseases with a smokescreen of deception and lies. For many years, the tobacco industry's response to questions on health was that it was not qualified to comment. That was British American Tobacco's line when I interviewed one of its executives, Alan Long, in Brazil in 1980. "I am not a medical man and therefore cannot offer a medical opinion," he told me. "I am, of course, aware that there is a very substantial controversy in this area." On camera, he then took a long draw on his cigarette.

How things have changed. Earlier this year, I visited BAT's research laboratories in Southampton. In its visitor centre, Dr David O'Reilly, the company's scientific director, pointed to a series of concentric rings painted on the floor, inside which were the names of the 100 toxic chemicals and carcinogens produced when a cigarette is lit. It's the burning of the tobacco that produces them. He pointed out lead, cadmium and mercury and carcinogens such as benzopyrene.

"You're inhaling [the toxins] into your lungs," he said. "Smoking is a cause of real and serious diseases, cancer, particularly cancer of the lung, stroke, heart attack and respiratory disease such as bronchitis and emphysema. For a lifetime smoker, about half can expect to die prematurely as a result of their cigarette smoking."

It is a shocking public admission from a tobacco company. Although everyone knows the harm smoking causes, nobody expects to hear a company admit, in such unequivocal terms, that it has been responsible for the premature death of its customers.

And therein lies the probable reason why BAT was prepared to let me through its doors. It wants to put the past behind it and rebrand itself as a socially responsible company, the good guys developing and improving safer, nicotine-based products such as electronic cigarettes (e-cigarettes), and their nicotine-based derivatives.

It calls its strategy "harm reduction": nicotine, it says, is no more harmful than a cup of coffee. But there are anxieties. No one knows what the long-term effect of inhaling nicotine vapour will be on "vapers".

It is naive to think that the development heralds the end of the killer cigarette. Currently, the UK market is small with just over two million "vapers" – three times as many as two years ago. Conventional cigarettes make up the lion's share of the tobacco industry's output and profits and will probably continue to do so for decades to come. Last year, BAT's operating profit was more than £5.5bn; the combined profits of the world's leading tobacco companies amounted to more than £30bn.

Kingsley Wheaton, BAT's director of corporate affairs, makes no apology for the business. "We have a legal right to operate. We are different because we are at the forefront of driving that tobacco harm reduction future. I understand that we are indeed the problem: that is no reason for us not to be part of the solution."

Veteran health campaigner Clive Bates is one of those who welcomes the smoking revolution. "If e-cigarettes could take half the cigarette market then it would make huge inroads amounting to hundreds of millions of avoided premature deaths. That would be one of the biggest public health interventions of all time."

Others are less convinced. Gerard Hastings, professor of social marketing at Stirling University, has severe reservations, not least about the way e-cigarettes are being advertised on television and showcased at sponsored sporting events just like cigarettes of old used to be. "There's a danger with the very evocative marketing [that] they get children interested in the use of nicotine and thereby smoking."

British American Tobacco and the industry insist they only market cigarettes to "adult" smokers, that is those aged 18 and over, and are adamant they do not target children. Health campaigners dismiss this as nonsense. The staggering statistic is that every year in the UK, more than 200,000 children aged between 11 and 15 start smoking.

The current battle over packaging – in which branded cigarette packs are replaced with packs showing gruesome images – is at the heart of this controversy. The main purpose is to deter young people from starting to smoke.

Professor Sir Cyril Chantler, one of the country's most eminent paediatricians who was asked by the government to examine the evidence on the plain packaging of cigarettes, is deeply concerned. "Nicotine is very addictive psychologically, but it is also addictive biologically. We now understand far better than we did before the mechanisms on the brain receptors that lead to that level of addiction." Chantler had his first cigarette when he was around 15 and in later life tried many times to give up with great difficulty before finally succeeding more than 30 years later. "If I knew then what I know now, I wouldn't have started," he says.

Advertising is the engine that drives cigarette sales, and packaging is the last means the industry has to advertise its product given government restrictions on its normal advertising outlets over the years in much of the world. BAT and its competitors are determined to do all they can to prevent the final dismantlement of its vital engine. The industry fought and lost a fierce battle in Australia, with the result that glossy packs there are now history.

In the UK, the battle is not yet over. The government performed a series of U-turns on the issue, first being supportive, then changing its mind. There were allegations that David Cameron's election strategist, Australian marketing guru Lynton Crosby, whose advertising agency has listed BAT and Philip Morris among its clients, had used his privileged position to lobby on behalf of the industry. The allegations were vehemently denied by Crosby and the prime minister.

The government then changed its mind again and appointed Chantler to carry out a review of plain packaging. In his report, he said he was "persuaded that branded packaging plays an important role in encouraging young people to smoke". The industry immediately challenged his conclusion and the evidence. But Chantler stands by his review and dismisses the industry's argument about only appealing to adult smokers. "I can't see how you can quarantine 15- to 18-year-olds or younger children," he says.

Despite his report, the government has still not declared it will go ahead with legislation although it is "minded" to do so. Instead, it has declared yet another period of consultation with the industry and interested parties. One of the main reasons for doing this is legal. The UK government is aware that if it does legislate, the industry may take action on the grounds that plain packaging violates its intellectual property rights and its freedom to market.

Uruguay is a case in point. It has some of the most stringent anti-smoking legislation in the world as a result of President Tabaré Vázquez's period of office that ended in 2010. Vázquez is also an oncologist. He told me that, on leaving office, he pressed his initially reluctant successor to increase the size of the health warnings and gruesome images on packets from 50% to 80%, making them the largest health warnings in the world at the time. As a result, Philip Morris, the world's largest tobacco company and manufacturer of Marlboro, the world's best-selling cigarette, is suing Uruguay's government on the grounds that the larger health warnings infringe its intellectual property rights and impede its ability to market its products. It is taking action under the bilateral investment treaty between Uruguay and Switzerland where Philip Morris has its headquarters.

Vázquez has no doubt why Philip Morris has taken legal action. "I think they used Uruguay as a guinea pig because it is a small country. They took it to court to serve as a warning to other countries in the area that are starting to follow Uruguay's path to stop them from doing it." Did he think Uruguay could win? "It's not easy," he said. "We are confronting a giant, like the fight between David and Goliath. But David already won once; maybe there will be a second time."

Philip Morris told us the notion of litigation serving as deterrent to others is laughable. Since it lodged its claim, it says, more than 30 countries have increased tobacco regulation. Vázquez is running for office again this year. He's probably the last person Philip Morris wants to see in the presidential palace.

Australia's legal battle with the industry also involved the issue of intellectual property rights. Following the passage of plain packaging legislation in 2011, BAT and Japan Tobacco International (makers of Benson and Hedges and Silk Cut) took legal action in the Australian high court arguing that the legislation was unconstitutional and violated their intellectual property rights. The court ruled against them. But Philip Morris has also entered the battle and is fighting a case from its Hong Kong base arguing that plain packaging violates a bilateral investment treaty on the same intellectual property grounds.

Now the industry's lawyers appear to be loading their weapons much closer to home. Ireland is committed to introduce plain packaging later this year and its health minister, Dr James Reilly, is defiant and for personal reasons too. His brother died from lung cancer and his father from a stroke. Both were heavy smokers. "I'm 100% convinced [the industry] is going to take legal action," he told me. "I know already that barristers have been retained by the tobacco industry so that we won't be able to retain their services. But we anticipated that, so we have retained the best [lawyers] way back before this fight began. It would be an extraordinary society that would put the intellectual property rights of multinationals over the right to life of citizens and children particularly. This is a nation that stands on its own two feet and we will protect our children."

And what if the UK government goes ahead and legislates for plain packaging? I asked Wheaton what BAT would do. "Plain packaging inherently involves the taking of what belongs to us – our intellectual property. The government's taking something that is not theirs and taking that property as if it were their own."

Would BAT sue? "If we think it contravenes international or UK trade legislation, then we reserve the right to take legal action if we think it's appropriate." Such is the threat that now hangs over the government as battle is about to be joined once more.

Intellectual property rights are high-sounding words to defend the right to market the most deadly consumer product on the planet, a product that kills more than five million of its global customers every year. Critics say it's hypocritical for an industry that talks of corporate responsibility and professes to care about children, to attack legislation that is designed to defend them.

Chantler has no doubt where the truth lies. "We have a duty of care to our young people and our children and we should do everything we can to encourage them not to do something they will regret in later life. I wish the tobacco industry would just accept it. They're decent people, so why don't they do their very best to help us all reduce the risk of young people starting to smoke?"

Burning Desire: the Seduction of Smoking will be shown on Thursday 29 May and Thursday 5 June at 9.30pm on BBC2.

• This article was amended on 30 May 2014. The earlier version said "Philip Morris … is suing Uruguay's government for an estimated $2bn in compensation, that's 5% of Uruguay's GDP". The Uruguayan government has stated that the tobacco company's legal action, on grounds of infringement of intellectual property rights, was for an estimated $2bn, and that was confirmed as the government's position in a BBC interview by Dr Tabaré Vázquez, who was president in 2010 when the case was initiated. However, Philip Morris International says the figure is "wildly inflated", and that it is seeking only $25m in damages.